Question

Lovell Computer Parts Inc. is in the process of setting a selling price on a new component it has just designed and developed. The following cost estimates for this new component have been provided by the accounting department for a budgeted volume of 50,000 units. Per Unit Total Direct materials $55 Direct labor $28 Variable manufacturing overhead $20 Fixed manufacturing overhead $650,000 Variable selling and administrative expenses $13 Fixed selling and administrative expenses $300,000 Lovell Computer Parts management requests that the total cost per unit be used in cost-plus pricing its products. On this particular product, management also directs that the target price be set to provide a 25% return on investment (ROI) on invested assets of $1,000,000.

Your answer is incorrect. Try again. Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 25% on this new component. (Round markup percentage to 2 decimal places, e.g. 10.50%.) Markup percentage % Target selling price $ Link to Text Link to Video

Your answer is incorrect. Try again. Assuming that the volume is 40,000 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 25% on this new component. (Round answers to 2 decimal places, e.g. 10.50% or 10.50.) Markup percentage % Target selling price $

Answer 1

Answer- Mark-up percentage = 3.70%.

Selling price per unit (50000 units) = $140 per unit.

When the volume is 50000 units, mark-up of 3.70% and the target selling price of $140 per unit would allow Lovell Computer Parts to earn desired ROI of 25% on the new equipment.

Variable cost per unit = Direct materials+ Direct labor+ Variable manufacturing overhead+ Variable selling and administrative expenses

= $55+$28+$20+$13

= $116 per unit

Fixed cost per unit = (Fixed manufacturing overhead+ Fixed selling and administrative expenses)/Budgeted units

= ($650000+$300000)/50000 units

= $19 per unit

Desired ROI per unit = ($1000000*25%)/50000 units

= $5 per unit

Selling price per unit (50000 units)= Variable cost per unit+ Fixed cost per unit+ Desired ROI per unit

= $116 per unit+$19 per unit+$5 per unit

= $140 per unit

Mark-up percentage = (Desired ROI per unit/Total units cost)*100

= ($5 per unit/$135 per unit)*100

= 3.70%

Answer- Mark-up percentage = 4.47%.

Selling price per unit (40000 units) = $146 per unit.

When the volume is 40000 units, mark-up of 4.47% and the target selling price of $146 per unit would allow Lovell Computer Parts to earn desired ROI of 25% on the new equipment.

Variable cost per unit = Direct materials+ Direct labor+ Variable manufacturing overhead+ Variable selling and administrative expenses

= $55+$28+$20+$13

= $116 per unit

Fixed cost per unit = (Fixed manufacturing overhead+ Fixed selling and administrative expenses)/Budgeted units

= ($650000+$300000)/40000 units

= $23.75 per unit

Desired ROI per unit = ($1000000*25%)/40000 units

= $6.25 per unit

Selling price per unit (40000 units)= Variable cost per unit+ Fixed cost per unit+ Desired ROI per unit

= $116 per unit+$23.75 per unit+$6.25 per unit

= $146 per unit

Mark-up percentage = (Desired ROI per unit/Total units cost)*100

= ($6.25 per unit/$139.75 per unit)*100

= 4.47%